Jamie Dimon Vs. Larry Summers

July 19, 2009

Jamie Dimon has won big. JP Morgan Chase now stands alone, both in financial position and political clout--including special access to the White House and, as explained in today's NYT, Rahm Emanuel's likely attendance at his next board meeting tomorrow.

Dimon's semiotics have been brilliant throughout the crisis--it wasn't his fault, he was forced to take TARP money, and--in phrasing that will make the history books--bankers should not be "vilified." But now he has a problem.

Larry Summers forcefully stated Friday that high recent profit levels for big banks (i.e., JPMorgan and Goldman) are based on the support they received and still receive from the government (listen to his answer to the second question, from about the 6:10 to 10:30 mark). At that level of generality, in a period of financial stabilization and consequent reduction in executive branch discretion, this statement does not threaten Dimon or anyone else.

And Summers' statement on the dangers of "too big to fail" was "too vague to succeed." Dimon saw this one coming and is very much aligned with Tim Geithner on the technocratic fixes that will supposedly take care of this--the mythical "resolution authority," which will not actually achieve anything because it has no cross-border component, so the next time a major multinational bank (e.g., JP Morgan) fails, the choice again will be "collapse or bailout" (as Summers put it in the same Q&A Friday). Yes, I know the G20 is supposedly working on this; no, I don't think they are making progress.

But Summers also drew a line in the sand on consumer protection.

Reformists within the administration really need a new consumer protection agency for financial products--there is little else they will be able to point to as an achievement on banking issues. Summers did not, for example, on Friday even mention the need for stronger regulation over derivatives; Dimon has likely already prevailed on this.

Consumer protection is easy for people to understand. If the banking lobby really defeats or defangs it this year--as it almost certainly can--won't that make meaningful re-regulation of banking a big issue for the midterm elections in 2010 and beyond?

And does Dimon really want to publicly confront and defeat Larry Summers?

It must be tempting for Dimon to now press home his advantage, including at the White House. But as JP Morgan Chase stands alone at the top of our banking hierarchy, how far should he push his luck?

Summers has an unparalleled ability to move the consensus. And if he is now running from the left to become chair of the Fed--which was my impression on Friday--this will shift all candidates, including Ben Bernanke, towards being tougher on banks.

Why doesn't Dimon instead seize on greater consumer protection as a way to rebuld legitimacy for finance--and to shape the new rules so as to create barriers to entry and growth for future rivals?